When you want to start a new business, you should already have at least some of the funds necessary to get operations up and running. But if you do not have really deep pockets, there’s a good chance you’ll need to get a startup business loan.
What Is a Startup Business Loan?
Startup business loans, usually from a traditional lender such as a bank, are designed specifically for someone wanting to start a new business but have a limited business history or none at all. A startup business loan can be a small business loan from the SBA, a credit card, a grant, a personal loan from a friend or family member, or one from crowdfunding.
Someone wanting a startup business loan usually won’t have an extensive history, but they will need excellent credit to secure the loan. In these situations, the equipment used in the business will be considered collateral, and the loan amounts would not be substantial. Oftentimes, the loan is between six months and four years, and the equipment becomes obsolete before the loan has been fully paid off. One positive aspect of startup business loans is they can provide quick access to the funds.
Who Is Eligible for a Start a Startup Business Loan?
A startup business loan is technically designed for businesses that have been in operation for six months or less. The most important criteria is the owner’s personal credit score. This is especially true for SBA loans or credit cards.
Alternative startup business loans include those from friends, family, crowdfunding, or grants, and these rely more on what the lender knows about the owner in terms of the business model, reputation, and soundness of the business idea.
How Do You Get a Startup Business Loan?
The first item on your to-do list is to determine your anticipated initial and ongoing costs of your business. Initial costs include the equipment you’ll need to purchase such as related machines, vehicles, computers, in addition to furniture, supplies, and permits and licensing fees. Ongoing fees include payroll, mortgage, insurance, and taxes.
Which Type of Startup Loan Do You Need?
You’ll need to decide what type of loan you need for your business startup. To do this, you should decide what the funds will be spent on and what assets and funds you have at your disposal. Will you need equipment financing, a credit line builder, a business credit card, or a business line of credit? Do the research to learn what each of these is and decide what is best for your new business.
Are You Qualified for a Business Startup Loan?
The last thing you want to do when trying to secure your loan is to realize you aren’t even qualified for this loan! Before you waste your time and your lender’s time, make sure you have the qualifying credit score, cash flow, and annual revenue necessary to actually qualify for the business loan. If you don’t, it’s all just a waste of time. So, find out what all the qualifications are and start meticulously checking them off to be certain you are qualified for the loan. Here is a loan preparation checklist to help.
Prepare Loan Documentation
Lenders are impressed by borrowers who have all of their necessary documentation available. If you, as a borrower, want to increase your chances of securing your loan, it helps to have all of your necessary documentation ready and available. Doing this indicates to the lender that you are serious, organized, and thorough, and it will ultimately save you time by avoiding the unnecessary delays caused by having to retrieve this documentation.
Some of the documentation you’ll need will include a business plan, and this should include projected sales, income, profits, and cash flow in addition to the projected growth of your startup. All of this will help convince the lender that their investment in you and your business involves as little risk as possible.
Other documentation includes state and local registrations, your employer identification number (EIN), and any permits and licenses you’ll need to operate in your locale. You’ll also need to produce financial documents such as tax returns, bank statements, and income statements.
As long as you do your homework by researching everything you’ll need and gathering every piece of information necessary to get your business startup loan, your chances of securing your business startup loan will be much greater than they would be if you approach your lender with a loan proposal that shows a lackluster effort on the part of the borrower (you!),
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